Welcome to Risky Business, Commercial Insurance with Butler Byers. This is Paul Martin, a business commentator on CKOM, and joining me in the studio, as always, our man, Colin Rooke, the commercial risk reduction specialist with Butler Byers and really the commercial risk reduction specialist period in Canada. He turns heads all across the country for the things that he talks about here on this program, but what he writes about and just generally his approach to how you as a business owner or someone who runs a business need to be thinking when you’re looking at how do I meet my insurance needs, and I guess this has never been a more pertinent question column than it is right now. You and I have talked over the last year, year and a half or so about something they call a hard market in insurance. Maybe you can kind of, if we’ve got somebody who’s just joining in and hasn’t heard us before, what is a hard market, and so what? What do I care about it?

Yeah, so a hard market is when, or usually occurs when losses have continuously exceeded premiums collected over a long period of time, and what occurs then is the capacity in the insurance market is reduced. So, what capacity is, is basically precious funds available to be deployed towards insurance. And so when you have years and years of high loss activity, eventually there’s less money available to go towards an insurance product. And it makes sense because if you take a dollar and every single year, the return, you’ll lose 40 cents, and you do that four or five times, eventually you smarten up and say, “Why would I do this?” And we see a lot of cycles up and down, right? So, in theory, in a few years, if we come out of this hardening or hard market, we’ll see a soft market.

So, losses are reduced, the frequency of spin severity of claims are reduced, the insurance companies are more profitable. So then they say, okay, we can reduce the cost of insurance, and that’s where you see a lot of competition in the market. A lot of clients switching insurance companies to save on premiums. The problem though is, so we have the most loss activity recorded three years consistently in the last 28 years. And we are now headed into the 12th quarter of average double-digit rate increases due to, again, the frequency and severity of losses in the market, and so it really does show that we’re nowhere near heading out of a hardening, this hard market, despite being in a hard market for about two, two and a half years.

Well, if I am a business owner, a hard market means I’m probably facing premium increases or tightened up coverage or just, it’s the insurance industry, the market’s ability or way of saying, “Hey, we’ve been paying out more than we’re taking in and we’ve got to fix that.”

Yeah. So what you typically see in a hard market, and those listening would have seen this, is you’ll see exclusions on your policy or you’ll see changes in wording. So, again, it might not mean a lot to you, but when they revise the wording, it’s to protect the insurance company. You’ll see reduced limit, so you’ll say, okay, well, last year this client could insure you this building were 30 million, the whole thing. This year, they’re saying they’ll only take 10 million, and my broker has to go find the other 20. So you’re seeing a ton of that, and you’re also seeing significant price increases. And so you might say, well, why is that? If they’re excluding coverages, if they’re reducing what they can offer and increasing the price, why am I getting kind of hit with these three items?

That shows just how bad it is, because on any given year, one of these tricks would work, right? We’re not going to exclude anything. We’re going to keep our capacity where it is, but we’re going to charge a little more because the losses haven’t been great. But now they’re saying, nope, we’re going to strip that policy down, we’re going to limit our exposure and we’re going to charge through the roof, and you still might not find terms.

When you are talking to those in the industry or when you’re reading the material that the insurance companies are producing, what are the themes that they’re talking about and what are they saying to you? What messages do they send to you, the broker, who then have to translate that to the end consumer, the local business?

So it really all comes down to rationale. Why is this happening, right? And so, they are referencing, of course … We deal in loss ratios with every single company, and then we see national stats on, we’ll see sort of a Canada wide loss ratio in North America and even global law, not loss ratios. And I’ve talked about that on the show, in the past, where Lloyd’s of London in 2019 paid out basically a $1.07 For every dollar they took in which they can’t afford to do. What I haven’t talked about as much is the combined loss ratio, which looks at premiums collected, payments made, but then calculating expenses as well. And so when you look at again from a global perspective and being in Canada or even Saskatchewan, you might say, well, how does this impact me the global numbers? But if you look at it, every single policy is just really in a ginormous pool. So what happens overseas affects you hear. The global combined loss ratio of 2019 was over 320%, meaning statistically, there isn’t an insurance company anywhere that made any money on any line of business overall.

And obviously, no company, industry or sector can continue to operate in a perpetual loss position. I’m sure that is changing the psychology or the sort of perspective of those who run insurance companies and really how they look at how are we going to market in the future. So you, as a broker, you’re kind of in between here, between the end user and the supplier. And the supplier is complicated because you have insurance companies followed by reinsurance companies, and maybe we should talk about that as well, but what messages are they asking you? And maybe you’ve kind of explained that, but let me put it this way, how serious are they about pushing you to deliver this message to your customers?

It’s a serious issue. I mean, the message that we have to deliver is that if these losses aren’t … If our clients aren’t working a plan, if we don’t do something about the losses, and this is for the whole industry, the availability of insurance is going to be extremely restricted. It makes complete sense. For anyone listening, if you were given an opportunity to invest in an insurance company right now, and you were told you are guaranteed to lose three times your investment each and every year, how many people would take that bet? And so, when it comes to the reinsurance topic, there’s a lot of reinsurance dollars available globally. So if availability isn’t the issue, the reinsurers are doing fantastic.

The reason why they’re doing fantastic is because all the insurance companies are buying so much reinsurance because of horrific claims experience. So there’s a lot of capital that’s not being deployed. The challenge is they don’t want to deploy it. Why would they take a billion dollars knowing it’s going to turn into 200 million at the end of the year? They say, well, there’s a lot of different ways we can deploy this capital and we don’t want to invest it in the insurance market. It’s a losing bet for us.

Boy, this is an interesting story. We’ve got to take a little break and when we come back, I’m sure there are some measures that the local business owner can take to protect themselves as best you can, and maybe we’ll explore that. You’re listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers, Commercial Insurance. This is Risky Business back in a moment.

Welcome back to Risky Business, Commercial Insurance with Butler Byers, Paul Martin here. Joining me today, Colin Rooke, the commercial risk reduction specialist with Butler Byers. Colin, before the break, you were painting, well, I guess a pretty dark picture of what insurance markets look like these days. The insurance companies have been taking it on the chin. You can do that only so long before either you go out of business or you change the way you do things, and the change the way you do things is trickling down now. Business owners in Saskatchewan are starting to, when they see their policy renewals come along, they say, whoa, where did this come from? And you’re trying to explain that, hey, it’s tough market out there.

It is. So there’s a term that brokers will use or underwriters will use and it’s the term nuclear claims, and nuclear claims used to be referred to as any claim in excess of $10 million.

And going back 10 years, a $10 million plus claim, the whole industry would talk about it. We would know which insurance company was on risk for that and what they were out or how many participants. Now, a $100 million is the new $10 million. The nuclear claim is a $100 million plus, and that number is growing, and that’s a significant jump in a short amount of time. And when you think about that, and usually these are in the casualty side, the liability side, but when you have claims exceeding a $100 million, there’s no way on a $100 million payout that any insurer anywhere collected anywhere close to that in premium. And so, one of the largest insurers in the world cited that the top three payouts of 2019 completely exceeded all collected premiums. Three payouts only. And that’s a scary thought.

Yeah. The response has been fantastic in my opinion. The insurers certainly weren’t obligated to do anything, but they wanted to help their clients out as much as we did. They just about unanimously stepped up and offered credits for various components of plans. Meaning it was fairly tailored to specific plans that were fully insured, which we can maybe talk about another time. The most clients are on that structure, and they were receiving in the neighborhood of 50% reductions on premium and dental. Naturally health expenses were continuing. People that needed medications were still getting their medications. Some areas weren’t impacted quite as heavily, but dental offices were essentially shut down. Your paramedical providers, your massage, physio, chiro, et cetera, they were pretty much shut down as well. There were some pretty healthy discounts to be had on the health side of premiums as well. It was really great to see how the insurance companies came forward to step up and offer that.

On the one hand I say that, but on the second hand, it’s clear that the claiming activity drops dramatically. I think the second part of your question there is; there’s still a lot of unknown as to what’s coming in front of us. As all these new parameters are put in place for practitioners and dentists and what they have to accommodate and their added costs. There’s a lot of speculation that the cost of these services could even go up for the near future. They’re not going to be able to work full hours, that they were pre-pandemic. Frankly again, I expect that they’re going to have to do something to try to one, make it affordable for their clients, but also to recoup some of their expenses as well. The credit system is still in place for a good chunk of providers, but it’s dwindling. They’re not going to provide that forever.

So this is an industry that’s really at a crossroads. It’s kind of in trouble, but if they’re big players, and because they’re big kids, they know how to cope with this, so they’re taking the steps that are needed to protect the industry. But all of it all falls downhill and eventually it comes to the consumer, the end user, the buyer, and in this case, we’re talking commercial insurance so this is businesses, and in Saskatchewan, that means mostly small business. It’s just the reality of what it is, is premiums are going to go up, exclusions are going to increase, and you can not like it, but it’s kind of what you have to deal with. Are there some ways that the average business owner can protect themselves? I mean, what do you advise them to do?

Yeah. So, I say this all the time, but it’s really easy to sell a cyber liability policy after a breach. It’s really easy to sell the education. It’s really easy to, not sell in a sense, but sell the business on why work on the risk, right? So you’ve had a breach, now we’re all ears. And this global reinsurer said it perfectly that if you don’t have a plan to address risk, pricing is going to force risk management, and that’s where we are now. The purchasers of insurance, our clients, our prospects, every business owner out there, you can say, I’m going to continue to become a victim, and you will find yourself in periods where you’re going to have uninsured losses due to reduced capacity and availability of coverage.

Now is the time that risk management has to be a priority. It would be nice if, globally, every firm in existence have this stance. We’re not there yet, but every individual can do their part, and we’re going to get to the point soon, where with a submission or a quote, we’re going to have to submit the risk management plan or you won’t receive coverage. For example, if you’re looking for abuse coverage, they care less about the questions on the application. The whole conversation is, what are you doing to avoid abuse? I would argue soon that we won’t have to give any company information as far as number of employees, what programs exist. It’s going to turn into an interview on your policies and procedures. And it makes sense, right?

If you are in an organization that is higher risk or susceptible to abuse, and you say, well, we’re busy. We don’t intend to do anything. Statistically, it’s going to happen to you. Those that think about it, those that plan, those that devise a plan and work the plan and revisit the plan and modify the plan are less likely. But now we have to expand that to all lines of coverage. The losses in auto are horrific and every single auto loss is avoidable. Every single one. All it takes is a commitment to auto fleet safety. Training your drivers, talking to your drivers, documenting things, the old walk around the vehicle before you take off, reducing your speed limits. It’s a 100% avoidable, and yet there’s not enough businesses out there committing to fleet safety.

You made a… Sorry. You made a good point though, Ryan. Something that I hadn’t considered that, yeah it is nice to say… I’m not trying to knock any of the insurers, but it’s nice to say that they all stepped up and gave discounts, but you’re right. If there’s no claims activity, they almost have a responsibility to do something. Thinking about the auto comment I made before the break. Again, you’re right. It’s easy to praise them saying, “Well, they’ve come to the table to help out the industry.”, but if the cars aren’t going anywhere, they’re certainly not going to bounce off other cars or other people or other buildings. So on some level there’s a responsibility there to say, “We’re collecting an awful lot of premium on vehicles or around dental, for example, that really can’t be used.”. Anyway, it’s just a good point that made me think that, in some ways they’re almost forced into it.

Yeah. That’s absolutely the case. It’s the old catch 22. They’re mostly profit companies and they do just fine. Naturally the reality of what they’ve done I think is they’re responsibility to do it, but I think that they’ve done a great job in how they’ve handled it. I’ll also add, the renewals that I’ve seen over the last couple of months have been very reasonable as well. Essentially all the insurers are doing what they can to continue to help in that regard as well.

What’s going through my mind here is a thought that says insurance companies, and the way you phrase it, you quoted the insurance company really caught my attention is, if you don’t do it, we’ll force you to do it through pricing. You can’t really look at insurance now as, well, I didn’t get around to it, or I’ll be a little lazy or careless and insurance will cover it, not anymore. Now it’s got to be insurances going to drive me to be more safety, just more prudent and more vigilant in how I operate my business.

Absolutely. And just back to that, the risk management comment, when it comes to marketing, so shopping around, we’ll call it. There’s virtually no options now, for most lines of business. New business is not a priority for anyone, and this is not a COVID issue. This is not a working-from-home issue. This is losses being paid in ’18 and ’19 that have occurred in ’16 and ’17. And unfortunately the losses have continued in ’18, ’19 and ’20, meaning these losses are going to be paid out for the next two or three years, and so that bill is growing. And so insurance companies are afraid to take on new business, meaning, if you say, well, why does that matter to me?

Well, if you’re with a market and you’ve been a great risk, but you’re with a market that has made some poor decisions on other clients, and you are going to pay the price with a 100% rate increase, if we don’t have a reason why someone else will take you, you’re still in that same pool. Your premiums will contribute to the rehab of the whole line of business. So, it’s never been more important than now to focus on making your business as desirable as it ever could be.

Colin, we’ve got about 20 seconds left, and so this is the opportunity here for you to just say, hey, we have the step-by-step plan, that’s something we’ve talked about forever on this program is the step-by-step programs. People can call you. You’re more than willing to talk to them about it and show them how you can help them protect themselves.

Couldn’t have said it better.

You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers, talking about the state of the industry, and it’s pretty tough right now and you need to take some steps as a business owner to protect yourself. This is Risky Business. Thanks for joining us. Talk to you next time.

A hundred percent. I couldn’t agree with that comment more, because we’re on the front lines. We’re always looking at the nuances and what are the trends in the industry? It’s not just about selling them on, add this product. It is so much more about building a plan and evolving their plan with their business, which can be completely different to their neighbor next door. We’re here to help them and keep them apprised of what’s going on and how we can help their plan, and ultimately their employees.

Listen, we’ve got just one minute left here before we have to wind this up. I’m just going to toss this out, and I didn’t brief you on this question before, so it’ll catch you by surprise. I just, I can’t help but notice the difference in the way this is unfolding between Canada and the US. You operate in Canada, but do you have observations on what’s going on in the States and are there implications in Canada? Especially for employers who might operate both sides of the border?

Yeah. We have a fair amount of exposure, actually, to US parent companies that have their operations in Canada and we handle their Canadian benefits. I’m loosely exposed to the US benefits themselves, but certainly at the decision making level… The executives, with all of our resources, seem to be frankly in a bit of panic mode. They’re, day by day, slashing and cutting. Doing whatever they need to do to make things work. I would say that seems to be the bigger organizations. The smaller ones seem to be a little bit more consistent, but in terms of their Canadian operations, they’re just not familiar with our language. We’re both speaking English, but it’s dramatically different.

Yeah. Different governance rules.

Yeah.